Bribery (Definition)

the offering, promising, giving, accepting or soliciting of an advantage as an inducement

for an action which is illegal, unethical or a breach of trust. Inducements can take the
form of money, gifts, loans, fees, rewards or other advantages (taxes, services, donations,
favours etc.).
Active & Passive Bribery
When a person offers, promises or gives a bribe, it is called ‘active bribery’ and when a person requests,
receives, or accepts a bribe, it is called ‘passive bribery’. Both forms are of concern to companies and are
outlawed in most countries.

Examples of Active Bribery

 Bribing a public official in order to:
o Be awarded a contract in the briber’s favour.
o Obtain an inspection report or to be awarded a license.
o Circumvent planning or safety controls.
 Channelling bribes to win public contracts through a consultant.
 Payment of small bribes to customs officials to expedite passage of goods through a port.
 Employing a public official’s son to influence the award of contracts.
 Providing sponsorship fees and excessive travel expenses for doctors to influence them to prescribe a
pharmaceutical company’s products.

Examples of Passive Bribery

Passive bribery takes place most often in certain operating functions; examples of instances are below:

 Security: A security officer in a company accepts a bribe from criminals to allow access for theft.

 Purchasing and procurement: A procurement executive demands a ‘kickback’ to award a contract. This
involves a portion of the contract fee being given back to the individual who made the decision to award
the contract. The consequences of such bribery can include financial loss through overpaying for goods,
projects or services and purchase of substandard, counterfeit or otherwise non-compliant goods or services.
 Allocation of goods and services: An employee favours a customer by expediting delivery at the expense
of other customers or giving preferential allocation of goods or services.
 Recruitment: An executive demands a bribe to appoint or promote a person who would otherwise not have
been selected. A senior buyer awards a contract on the strength of promise of a lucrative appointment with
the supplier after a suitable interval.
 Insider fraud: A bank employee accepts a bribe to provide details of the bank’s customers
 Illegal information brokering: An executive accepts a bribe to provide contract specifications to be used
in a tender ahead of time. Bribery might also be accepted to alter the specification in favour of a bidder.
 SECTION A: WHAT IS A BRIBE?
1. Cash is (still) King - Direct cash payments
2. Junkets and jollies - Excessive hospitality
3. It’s like Christmas. All over again.
4. In-kind Benefits as Bribes: You scratch my back. I’ll
scratch yours.
5. Grease is the word - Facilitation Payments
6. Charity. What’s not to like?
7. You say lobby. I say bribery.
8. Mr Five percent
 1. CASH IS (STILL) KING
Direct Cash Payments as Bribes
DESCRIPTION
Although an apparently blatant form of bribe-paying, many bribes globally still come in the form of
cash payments, alongside “in kind benefits”, such as luxury goods.

This is especially true in countries with cash economies. Even though cash is the most straightforward
means of bribery, the way that the bribe money is routed can be quite complex and involve several
stages.
•
EXAMPLE 1: Grease payment
(One-off payment to secure an import
permit)
• A company providing oil services needs to import
a spare part into a Caribbean country. Without it, a
drilling rig faces shutdown at a cost of hundreds of
thousands of dollars per day. The part is held up in
customs.
• A local customs official handling the transaction
refuses to release the component, saying that the
company’s license only permits temporary
imports, and that this spare part is a permanent
import.
• This is the first time that the company had heard of
this, and it had no previous issues with importing
similar parts.
• Still, the customs official assures he can provide a
permanent import license, but to process it would
take three weeks unless he worked late each night
and all weekend on the paperwork. He does not
get paid overtime, he adds pointedly.
• A delay could mean the oil services company
losing an important client as well as facing
additional storage charges, so the company offers
to make a cash payment to the official as
‘overtime’.
• To avoid awkward questions over the payment, the
company records the payment in the books as
‘consulting fees’.
EXAMPLE 2: The out and out bribe
(Single payment to obtain a contract)
• A bank in a Western European country is
competing for a mandate to privatize a state-
owned utility company.
• It is a competitive tender and to win the mandate it
has to put together a consortium of partners with
the right capacity.
• The government officials running the tender hint
that the bank’s bid would get much more favorable
consideration if it appointed a particular broker.
• The bank appoints the broker named by the
officials. The public officials also note that it is
normal business practice for cash payments to be
transferred to the personal Swiss bank accounts of
the CEO and senior management of the broker.
They say it is an unofficial but expected ‘token of
appreciation’ of the broker’s great work.
• A senior manager with the bank finds out that the
broker is in fact partly owned by the officials, and
realizes that transferring the cash would amount
to a bribe. But he is under pressure to win the
mandate and feels that since they have come this
far already, and there is no turning back. He
agrees to make the payments.
EXAMPLE 3: Bribery on the never never
(Regular payments to retain a contract)
• A management consulting firm has won
business from a state-owned energy company
in Eastern
Europe.
• Six months into the project, at the contract review
date, the energy company threatens to terminate
the contracts blaming the unsatisfactory progress
made by the management consultants.
• At the same time, some energy company
officials let it be known that the contracts could
be extended for three years if certain key
executives start to feel a greater personal
attachment to the management consultancy.
• To keep the business, the lead consultant on the
project starts to transfer monthly cash payments of
USD 5000 each to 4 senior employees of the
energy company. He has dummy contracts drawn
up saying that the executives are providing private
advice on local “laws and customs” involved in
doing business.
• After all, USD 20,000 monthly expenditure seems
small when compared to the monthly revenues. It
is booked as ‘advisory service fees’.
EXAMPLE 4: Never too late...?
(Taking a short-cut to achieve a target)
• An importer receives a late consignment of
seasonal products for export. They will help him
retain the business of a major supermarket client.
• The products have a short shelf life and require
various permits from three Ministries in the
relevant country – food, exports and customs.
• The process to obtain the permits normally takes
8-12 weeks. But this is too long for the shelf life of
the goods.
• A local intermediary hears of the predicament and
offers to speed up the process but the cost is
USD6,000.
• A payment this size would eat into the profit
margin for the consignment but help to retain the
longer-term relationship. The importer agrees to
pay the intermediary, who uses the cash to bribe
the mid-level officials who can issue the permits.
 GUIDANCE – LOOK OUT FOR RED FLAGS AND
FACT PATTERNS Avoid getting into a situation when a
bribe may be solicited or demanded
• For example, be aware of red flags such as whether demands for cash bribes are prevalent
in this country or industry.
• Build in longer lead times to avoid being exposed to ‘offers’ to speed up a lengthier process
with the use of unofficial ‘rush’ or ‘express’ services.
• Avoid using procedures that require cash as much as possible, especially when paying
suppliers. Refer all emergencies requiring cash payments to compliance.

Know how to deal with it if asked for a bribe

• Make sure key staff are trained in techniques to avoid paying bribes.
• Ensure that any staff who withdraw from a business opportunity because they refuse to
pay a bribe know they will have the support of their line managers and senior managers

Be alert to others who may be paying bribes

• Are there significant cash transfers that are booked under generalised cost headings?
• Does the company appear to be retaining a particular contract even when under-performing
or in a market where competitors might be pricing more keenly?
 2. JUNKETS AND JOLLIES
Excessive Hospitality as Bribery
DESCRIPTION
Offering and receiving corporate hospitality is a widespread business practice. It can be an effective
way to create, build and strengthen relationships that are an important part of many business
operations. The danger is when it becomes excessive or lavish, or is offered in situations such as a
restricted period during a tender, hospitality can easily cross the line from an acceptable business
practice into an illegal bribe. Regulators are likely to ask whether hospitality is ‘reasonable,
proportionate and bona fide’. Any hospitality, offered or received, that might not pass this test should
be treated as a red flag.
contract, even though another company submitted a
EXAMPLE 1: Hospitality offered in
bid that represented better value for money.
breach of company policy
EXAMPLE 3: Hospitality used as a
• A cosmetics company relies on door-to-door sales.
facilitation payment to secure a permit
• It is trying to expand into a large developing
country, but direct sales are strictly regulated • A company selling specialist road equipment in an
through licenses there. Asian country needs safety certification for its
• Licenses usually take up to a year to get, and products from a government agency.
meanwhile the country manager has obtained a • The government agency is under-resourced and
quasi-legitimate ’interim’ licence from a senior has a backlog of applications, but the company
official, needs to move quickly to consolidate the market.
• To avoid the rigorous inspections needed for • The country manager offers officials from the
official license, the company’s country manager agency a series of overseas training trips, in return
tells salespeople to “treat” junior inspectors to free for a “rush job” in processing the license
company merchandise in return for their application.
“leniency”. He gives them each $1,000 worth of • Although described as training trips, the trips are
merchandise to dispense. in reality an excuse to offer the officials
• At the same time, the country manager decides to hospitality in the form of hotels, per diems and
take care of the senior inspectors and licensing tourist activities.
officials through a hospitality ”programme” • The officials make sure the company jumps the
including dinner invitations to exclusive application queue.
restaurants. • The company’s country manager arranges the
• Although company policy prohibits gift-giving and overseas trip through a local travel agent,
hospitality to government officials, the salespeople concealing the expenses as corporate travel costs.
agree to since a senior manager suggested it.
EXAMPLE 4: (Excessive hospitality for a
EXAMPLE 2: Hospitality offered to an senior government official)
individual with decision-making power
and influence over new business • A telecommunications company is competing for a
lucrative tender announced by a state-owned Railway
• A company specialising in surveillance technology Authority of an African country.
would like to make sure that its contract with the city • The Railway Authority is part of the Ministry of
police force is extended. Transportation, and the Minister of Transportation has
• The company buys high-value Formula One tickets for a decisive say over who wins the contract.
two senior police officers who join company staff at • The telecommunications company hires local
the event. consultants, who organise a week’s luxury trip in
• In casual conversation at the event, the company’s Europe for the Minister as part of a’ relationship-
employees hint to the police officers that there would building’ exercise. One day of the trip involves seeing
be more such invitations for them in the future if the the company’s communications equipment in action in
city police force were to remain a client. another railway company.
• The officers convince their colleagues in the
procurement department to extend the company’s
• To keep the expenses of the luxury trip out of the • The telecommunications company approves and pays
books, the consultants submit inflated bills to the the invoices. It then wins the contract.
telecommunications company for their services.
GUIDANCE – LOOK OUT FOR RED FLAGS AND FACT
PATTERNS Some red flags:
• Is it in line with company policy?
• Who is being given hospitality?
• Could the hospitality influence the award or extension of business or a contract?
• The recipient says they’ll have to take the day off. They’d never be allowed to go ‘officially’.
• Might competitors or a regulator think it is a bribe?
• How would this be perceived by others (e.g. the media)?

Set reasonable, clear limits

• These should set out precisely how much is acceptable to spend on corporate
entertainments and hospitality in a given situation and/or country
• These should be recommended by country managers and reviewed regularly

Implement a review and approval process

• All entertainment should be authorised by management
• Ensure that requests outside of set parameters in the policy require a detailed application
and rigorous approval process.

3. IT’S LIKE CHRISTMAS. ALL OVER AGAIN.

Bribery in the form of Gift-Giving
DESCRIPTION
As with hospitality, gifts can be an important way to build and strengthen relationships that are
essential to smooth business operations. In some countries, low-level gift-giving is a normal part
of doing business.

The problem is that when gift-giving starts to become excessive or lavish, it can easily cross the line
and turn an acceptable business practice into an illegal bribe. Regulators are likely to ask whether a gift
is ‘reasonable, proportionate and bona fide’. Any gift, offered or received, that might not pass this test
should be treated as a red flag – particularly if it is offered in secret or is hidden in some way. Some
companies have banned the giving and receiving of gifts altogether. However, such a strategy is likely
simply to force the practice ‘underground’.

After all, bribes do not necessarily have to involve cash to be considered a criminal act or to breach a
company’s policy. For example, gift-giving to potential clients, business contacts, or government
officials may also be bribery. Sometimes, those wishing to disguise bribery may give an extravagant
gift because they feel it is easier .to hide than a straightforward cash bribe. Such gifts may be of
relatively large value – for example, a luxury car, or an expensive watch.
• The security services are in charge of protecting the
EXAMPLE 1: Excessively lavish gifts
Royal family, and all of its suppliers need to be vetted
offered to government officials
and approved by the Ministry of Interior.
• A subsidiary of a major global defence company wins a
contract to supply the security services of a country in
the Middle East.
• The defence company’s regional sales agent uses the
corporate ‘business development fund’ to buy luxury
cars for Interior Ministry officials in charge of
approving suppliers, and designer jewellery for their
wives.
• The agent then tells the defence company that such
gifts are a “normal” part of doing business in the
region, and they are proportionate to the size and value
of the contract. The regional director feels the gifts are
probably too excessive to be “routine” but decides not
to enquire too deeply as the revenue from the contracts
is too large to lose. Instead, he signs off on the gifts.

EXAMPLE 2: Gifts offered to an individual with

decision-making power and influence over new
business

• A multi-national company, selling power and

automation technologies, is bidding for contracts from
the energy ministry of a Central American country,
through its local subsidiary.
• The competition is tough, and the subsidiary’s
management follows the advice of its local ‘fixer’ to
make ‘suitable’ gifts to the procurement officials from
the Ministry. This will enable them to obtain
confidential information on rival bids.
• The fixer explains that is how business is normally
done in this market, and the rival companies will be
doing the same thing.
• Through the fixer, the local subsidiary’s management
arranged a gift, the latest iPad, to each of the Energy
Ministry’s key officials.
• The company receives information on the bids of its
competitors and submits a bid with “better”
specifications
GUIDANCE – LOOK OUT FOR RED FLAGS AND FACT PATTERNS
• Could the gift(s) be considered excessive in value?
• Is the giving of gifts in line with company policy? e.g. does the gift exceed the company’s
upper value limit for the giving of gifts?
• Who is being given a gift? e.g. is the recipient a foreign public official?
• Can the giving of a gift be seen as seeking to gain influence/favourable treatment, or perceived
by others as a bribe? e.g. competitors, regulators or the media
• Could the nature of the gift or the timing of the gift-giving influence the award of business or a contract?
• Are agents or other intermediaries involved in the gift-giving?
• Is giving a gift the cultural norm in a specific country – and if so is it possible to give
the minimum acceptable gift without breaching company guidelines?

Set reasonable, clear limits

• Ask the country manager to recommend limits on how much a gift may be worth
• Ensure managers approve all gifts
• Report all gifts to foreign officials to the compliance department or equivalent

4. IN-KIND BENEFITS AS BRIBES:

You Scratch My Back. I’ll Scratch Yours.
Favours
DESCRIPTION
Bribery takes many forms and one of the most difficult to pin down is the exchange of favours. There
will always be some individuals or organizations that can promote the interests of a public official or a
business person through privileged connections or status. This person is then expected to “return the
favour” – for example, providing potential contractors with confidential bidding information on rival
bids, choosing a particular contractor rather than other more suitable ones, or granting an export
license. The common theme is that favours are often secured with reciprocal favours and money does
not necessarily change hands. Cronyism and nepotism are also examples of these types of bribery,
where favours are given to decision-makers’ friends or relations to extract unfair advantage. Such
favours may come in many forms, including jobs, residence permits, or the provision of education and
healthcare.

EXAMPLE 1: Individual using
connections or position as a bribe
• A provincial bank in southern Europe would like to fill
in a vacant position on its board. One of the current
board members is very well connected and wields a
great deal of influence over the decisions of the board
appointments.
• He proposes for the vacant position a soon-to -be retired
CEO of a mortgage brokering firm of his acquaintance,
who is a reasonably suitable but not exceptional
candidate.
• As a mark of gratitude, the mortgage broker’s CEO
arranges an unusually low-cost mortgage for the bank’s
board member who is buying an investment property.
EXAMPLE 2: Favour to a personal
contact in exchange for a business
investment
• A UK private equity firm urgently needs to raise a
capital pool through attracting investment.
• The business development director believes that a North
African sovereign wealth fund would be the ideal
source for this.
• However, competition is high and the private equity
firm is relatively small.
• The business development director realises that the
father of one of his childhood friends has just been
appointed the deputy CEO of the sovereign wealth
fund.
• The business development director asks his friend to
convince his father to approve the investment.
• In return, the business development director offers his
friend’s sister a job in his expanding company, ensuring
that she will be granted a residence permit in the UK.
EXAMPLE 3: It’s not what you know – it’s
who you know. Giving favours in a rigged
procurement process.
• Company manufacturing urban waste management
equipment is expanding into a former Soviet Union
country.
• The company aims to supply infrastructure projects
there, which are managed by state-owned entities.
These outfits have to date relied on state-owned civil
engineering institutes to construct and develop their
projects.
• Breaking into this market is tough, as the civil
engineering institutes have a virtual monopoly, but
projected profits are a big incentive to try and there are
opportunities to become major sub-contractors to the
civil engineering institutes.
• The wife of the manufacturing company’s country
manager is a local and a former civil engineer. She is
still well-connected to the directors of several state
engineering institutes.
• She asks the directors of the two main engineering
institutes to design and construct projects that would
explicitly favour her husband’s company by
incorporating elements of the specification which only
her husband’s company can meet and rigs the
procurement process as a result.
• In return, she promises to use her husband’s
connections to secure enrolment of the directors’
children in exclusive European schools.
EXAMPLE 4: Jobs for the boys. And girls.
• A bank expanding into a new country has identified
very high potential profits from corporate services, but
market entry is more difficult than expected.
• To attract corporate clients, the country business
director decides to draw on his extensive social network
in the local business sector. He has decision-making
power over hiring staff and interns in his own operating
unit, and can make strong recommendations for hiring
of his own staff and interns elsewhere in the bank’s
global operations.
• He asks his contacts (who are at senior-executive and
senior-management level) to persuade their operating
units to switch their corporate accounts to his bank.
• In return, he promises to hire their children and relatives
for internships and entry-level positions through the
bank’s work experience and graduate recruitment
scheme. For particularly good corporate clients, he
assures them that friends or relatives would be hired for
more senior roles in the business development
department of his own operating unit.
 GUIDANCE – LOOK OUT FOR RED FLAGS AND FACT
PATTERNS Some red flags:
• Is there an improper advantage being offered in return for a service? e.g. privileged access to a
service otherwise difficult to obtain.
• Are family, friends, or the company gaining an exclusive advantage through the exchange of favours?
• Are normal, fair or regulated selection processes being circumvented by the exchange of favours?
• Are certain business decisions, such as employment decisions, being made without apparent
regard to merit?
• Is privileged access being offered to a particular service through a person’s connections or status,
where it is clear this person is exploiting his or her power and authority?
 5. GREASE IS THE WORD – FACILITATION PAYMENTS
Direct Cash Payments as Bribes
DESCRIPTION
Facilitation payments are small bribes, also called a ‘facilitating’, ‘speed’ or ‘grease’ payment, made to secure
or speed up a routine or necessary process to which the payer is entitled anyway. In this way, a transaction is
“facilitated.” For instance, paying off a customs official to release held goods (which he/she is obligated to do
anyway) would be considered a facilitation payment, as would a bribe paid to obtain a routine government
stamp. They are usually bribes to get things done quickly. These are also covered earlier in the section dealing
with payments in cash.

Variations: queue jumping; speeding things up; releasing a “blocked” transaction

manufacturing company recorded payments in its

EXAMPLE 1: Payment to
complete a “blocked”
transaction
• A biochemical pesticide company operating a factory in
a North American town has its stores of corrosive
chemicals guarded at all times.
• The local police provide this service but the officer in
charge requests ‘special allowances’ from the operator.
• Without payments from the operator, the police refuse
to allow the chemicals to be moved from the storage
bunkers to the production line citing safety concerns.
• Concerned with resolving the delays in production
quickly rather than increasing them even further by
reporting this incident, the site manager authorises cash
payments of travel and meal allowances in cash to the
senior police officer.
EXAMPLE 2: Queue jumping – regular
payment to ensure a company’s operations
are handled more quickly/efficiently than
competitors’
• A railway parts manufacturer has a contract for sales of
brake blocks to the Ministry of Transportation of a
Central European country.
• Before the blocks can be delivered, a government
agency must inspect and certify them for standards and
safety. The inspections are conducted at the company’s
warehouses.
• In order to make sure that the government inspectors,
who are known for delays and missing appointments,
would conduct the inspections regularly and on time,
the warehouse manager pays them USD 2,000 each
month.
• This helps the manufacturer to gain a reputation for
reliability and become the preferred supplier to the
Ministry of Transportation.
• As it is illegal for public officials to receive additional
payment for performance of their routine duties, the
books as consulting expenses and supplies.
EXAMPLE 3: Queue jumping – utilities
connection
• A drinks distribution company has just opened a new
sales and distribution office in the provincial capital of
a South Asian country.
• The General Manager is told by his local staff that it
will take 12 months to obtain a phone and broadband
connection, which is necessary to communicate both to
his field agents and head office.
• Mobile and satellite alternatives either do not work or
are significantly beyond the budget.
• After complaining to the landlord of his office suite, the
General Manager is told that a connection can be made
within the next week for a one-off payment of $500.
The General Manager asks whether it is an official fast-
track service, and is told that it is an unofficial service
but quite usual.
• He agrees to pay the $500 and the line is connected.
EXAMPLE 4: Getting what you are entitled to
• Amiddle manager of a North American spare parts
manufacturing company arrives off a flight at an airport
in a South American country where the company would
like to set up a manufacturing plant.
• He is entitled to obtain a visa on arrival, which the
country’s embassy has told him will cost US$75.
• However, the immigration official at the airport
demands US$250 insisting it is the usual fee for a visa
obtained on entry.
• The manager pays the fee as he is tired, does not want
to ask annoying questions, and he can re-claim it on
expenses.
 GUIDANCE – LOOK OUT FOR RED FLAGS AND
FACT PATTERNS Some Red Flags:
• Is a payment being requested or solicited for the purpose of expediting or facilitating a service to
which there is a legal entitlement, e.g. by a public official for a routine governmental action?
• Is the company gaining business preferential treatment through making the payment?
• Does the payment appear to be unofficial or covert in any way?
• Is the payment higher than or over and above the standard fee?

Know the local rules – when requested to make a payment for a routine action such as the issuance
of licenses or permits, check whether such a payment is official.

6. CHARITY. WHAT’S NOT TO LIKE?

Bribes Disguised as Charitable Donations

DESCRIPTION
Corporate involvement in charities is widespread; it can benefit communities and good causes, and provides
good PR. However, charitable donations can also be used as vehicles for bribes. For example, the charity may
be connected to an individual (such as a government official) who then uses his or her influence to give special
preference to the donor.

Trustees and board members of charities may be politicians, officials, and other highly placed and influential
people. The donations they ask for may directly or indirectly benefit them personally, such as suggesting a
hospital should be built using a relative’s construction company. Sometimes, a charity may be simply a front
for hiding or receiving bribes.

Variations: donations as political favours; donations that result in budget diversion; donations with
strings attached.
EXAMPLE 1: Donations as political favours
• A Central European subsidiary of an American
pharmaceutical company supplies drugs to state
hospitals.
• In recent months its sales have been threatened by
competitors selling generic drugs at lower prices.
• The company’s contracts are due to expire soon, and
management fears they will not be renewed.
• The company’s local director has his staff organise a
large donation to a series of healthcare charities being
set up by an official running for local office.
• The official’s community involvement and commitment
to healthcare is a major part of his campaign. In return
for the donation, the official promises to make sure that
when he is elected, the pharmaceutical company’s
contracts with state hospitals will be renewed.
EXAMPLE 2: Donations that result in budget
diversion
• An oil company is after an exploration license in the
former Soviet Union.
• It agrees with the local authority that a permit will be
granted and as part of an ‘offset’ arrangement, money
will be donated to a local charity to build two new
schools.
• The oil company’s negotiators are pleasantly surprised
about the ease with which the permit was promised, but
are happy to have it, and knowing the difficult politics
of the region certainly do not want to make any further
enquiries.
• The schools are built and get great publicity; there is
full transparency over the oil company’s contribution;
the company receives the exploration permit.
• Unfortunately, the local authority had already budgeted
for the building of the two schools. The funds for these
are then siphoned off from the education budget by the
local officials who agreed the permit.
EXAMPLE 3: Queue jumping – utilities
connection
• Acompany operates a series of casinos under a
government-granted gaming license, which is set to
expire soon.
• The company is also in the middle of an investigative
audit regarding potential accounting irregularities.
• A senior operations manager at the gaming company
has been notified by the finance department that the
 auditors are likely to turn up indications of book
keeping “oversights”.
• The senior manager approaches a partner at the auditing
firm at a business breakfast and “casually” mentions
that his company could be glad to make a USD 250,000
donation to the education charity that the auditing firm
has recently helped to set up.
•
• This is well received, but the operations manager says
that it will be paid in instalments - the largest of which,
USD 150,000, will be transferred after the audit of her
company is completed.
• The operations manager makes it clear that the audit is
unwelcome, and that the final instalment of the donation
depends on a favourable audit report.
• As the charity is an important part of the audit firm’s
own CSR programmes and positioning as an auditor of
educational establishments, the partner agrees to accept
the donation in return for a favourable audit report.
 GUIDANCE – LOOK OUT FOR RED FLAGS AND FACT PATTERNS
• Disclose all charitable contributions
• Exercise caution when making charitable donations where public officials
are involved. -- Can a donation be seen as influencing a public official in
some way?
-- Consider avoiding donations to organisations where foreign officials are patrons.
• Ensure that effective controls are implemented, including enforcement of adequate approval
processes and monitoring of use of funds.
• Ensure donations are made according to company policy.
-- If donations are made through intermediaries, ensure company policy is understood and adhered to.

7. YOU SAY LOBBY. I SAY BRIBERY.

Bribes Disguised as Political Donations

DESCRIPTION
Although corporate political contributions are permitted and regulated in many countries, as with donations to
charities, donations to a political party or a political campaign can also be used as bribes. The simplest and
most common scenario is when individuals, businesses, or other special interest groups find a way to “donate”
large amounts of money to a political party or an election campaign. In return, the politician(s) are expected to
promote the interests of whoever made the contribution, potentially in violation of their official duties .

EXAMPLE 2: Political donation made to

EXAMPLE 1: Political donation used as a the party of politicians with decision-
bribe in a specific procurement
making power over an ongoing contract
bid/contract
• A metal trading company holds a contract to refine
• A consortium of telecommunications companies is in
and trade iron ore that a Caribbean country receives
the process of applying for a mobile phone license
under concessions from another country.
from the Ministry of Information of a Western
• The two government ministers overseeing the
European country. Winning such licenses is usually
contract falls both belong to the ruling party of the
very competitive.
country.
• The Minister of Information has decisive influence of
• Before the contract is due to expire, the CEO of the
which company is granted the license.
metal trading company meets with the two ministers.
• One of the companies in the consortium proposes that
• He offers to make a USD 550,000 donation to
they make a donation to the re-election campaign of
sponsor their party’s annual conference, in exchange
the ruling party, of which the Information Minister is
for renewal of the contract.
a member.
• The conversation also implies that a blind eye will be
• The consortium contacts the Minister’s Special
turned to a profit-share arrangement from selling
Advisor and offers the donation. The conversation
concessionary iron ore that disproportionately
clearly implies that the Minister is expected in return
favours the company over the Treasury.
to favour the consortium’s bid.
• The ministers accept the donation.
• The Special Advisor accepts the donation and assures
the consortium that the Minister will support its bid,
as long as it is not unreasonable in value for money
or technical specifications.
 GUIDANCE – LOOK OUT FOR RED FLAGS AND FACT PATTERNS

• Have a clear policy and criteria for political contributions, including a definition of what is meant by a
political contribution.
• Where policy is not to make contributions, ensure there are procedures in place to prevent
contributions being made.
• Where policy is to make political contributions, the company should be able to answer the
following: -- Has the board and compliance function approved your contribution?
-- Can the donation to a political party, politician, or candidate running for office, be seen as an attempt
to gain a business or other advantage?
-- Is the donation in line with company policy?
-- Has the donation been reviewed and approved by senior management?
-- If there are agents or intermediaries that act on the company’s behalf, do they know and observe the
organisations guidelines on political contributions?
-- Are all political contributions publicly disclosed and transparent? This includes donations to
trade associations and payments associated with lobbying, as well as fees paid to consultants.
-- Have donations been made via trade associations or similar bodies, and if so were they in line with
company policy?

8. MR FIVE PER CENT

Bribes Masked as Commissions

DESCRIPTION
Paying commissions to an agent or intermediary as reward for bringing in new business is widespread in
commercial transactions, and is usually perfectly legitimate. However, there are situations in which commissions
are used as bribes, and these are usually secret or not properly disclosed. For example, an intermediary can pay a
bribe to win business for its corporate client out of the commission, and recover the money through an inflated
invoice.
• Yet, because BVI is out of the reach of regulators and
EXAMPLE 1: Sum paid for non-existing
the business opportunity is just too good to pass up, the
services to agents/consultants, intended to be
agent is hired and arrangements for the “consultancy”
passed on to the recipient as a bribe
payments are made.
• An oil services company puts in a bid to the
EXAMPLE 2: Sum described as commissions
government of a Central Asian country for a gas and
paid directly to officials to obtain contracts
oil field development project.
• The project is managed by a state-owned company. • A global financial services firm is setting up its real
After the bids are submitted, it officials let the oil estate investment business in a South Asian market.
services company know that to win the lucrative deal, • The managing director has good long-standing
it has to ”show generosity.” personal relations with one particular government
• The state-owned company officials then “strongly official, who is the director of the state-owned real
encourage” the oil services company’s country sales estate development body.
manager to hire a consulting company registered in the • The managing director and government official agree
British Virgin Islands as an “agent” and pay annual to seek real estate development opportunities in which
commissions of USD 1.3 million into its account for the firm can invest with joint venture partners. The
providing consultancy services. state body will be seen to be attracting foreign
• Nothing is actually known about the BVI outfit’s investment, while the firm will access local knowledge
business, and it is likely that the only work it will be of deal-making opportunities.
doing, consultancy or otherwise, is channelling the • The managing director and government official agree
money to the state-owned company’s officials. that in return for a small share in real estate ventures,
 the state entity would help the firm to obtain the
necessary licenses from the local government.
• Under the scheme, the managing director offers the
government official an opportunity to make personal
investments in five real estate deals at a reduced rate.
• Specifically, the firm would sell the official a 5%
interest in each deal, but only charge the cost of 4%;
the remaining 1% would go to the official as a
“finder’s commission”.
• The government official accepts this scheme, even
though he is legally prohibited from making personal
investments with firms because of his position.
• EXAMPLE 3: Payment for legitimate services (to
agents/consultants) is disproportionate to those
services so as to conceal a bribe
• Alarge electronics company would like to acquire a
state-controlled firm put up for privatisation in the
former Soviet Union. It hires a local consultant to
assess the financial health and prospects of its potential
purchase.
• Senior officials in the Ministry of Infrastructure, which
used to control the firm, have a decisive say over who
is allowed into the privatisation process. The officials
are known to be eager to supplement their salaries.
• The electronics company’s regional business
development team pays the local consultant unusually
high fees for his services, knowing that he will pass on
a proportion of the fees to the Ministry of
Infrastructure officials.
GUIDANCE – LOOK OUT FOR RED FLAGS AND FACT PATTERNS

• Refuse any request for excessive commission payments to intermediaries or ‘advisors’ who
claim they are able to secure business advantages.
• When entering business dealings that contain commission related fees, ensure these
agreements set a maximum commission, and include a description of services as well as
prohibition against payments to public officials.
• When faced with demands for large commission payments, determine whether meeting such a
demand would constitute behaviour that would violate relevant legislation, regulation, industry
codes or standards.
 SECTION B: HOW BRIBES ARE PAID?

1.Associates–Agents, Intermediaries, Introducers

2.Associates–Sub-contractors and Distributors
3.False or inflated invoicing or product pricing
4.Off-shore arrangements and off-balance sheet
payments
5.Joint ventures
6.Training
7.Per diems and expenses
8.Rebates and discounts or kickbacks
9.Employment contracts and association
agreements
 1) Bribery through Associates: Middlemen
Agents, Intermediaries and Introducers
DESCRIPTION
The use of intermediaries, sometimes also called introducers or agents, is widespread and legitimate in
global business. They provide local knowledge, legal advice, market research, sales, and logistics, and
are particularly useful in new or unfamiliar markets. However, the channelling of bribes through
intermediaries is a common feature of bribery schemes. To hide bribes, a chain of intermediaries is
often used to disguise the link between the recipient of the bribe and the bribe-paying company. It is
not unusual for intermediaries, or some links in a chain of intermediaries, to be professionals such as
lawyers, accountants or bankers. They can be used to add a veneer of respectability to a corrupt
transaction.

Variations: Five types of common bribery scenario via intermediaries are:

1) Intermediaries acting on their own initiative: intermediaries may decide to pay bribes of
their own accord and without the knowledge of the company that contracted them. The
amount of the bribe would be “included” in the commissions they receive for bringing in
business.
2) Intermediaries providing both legitimate business services and a bribery service: routing bribes may
be one of the services the intermediary is hired to provide. For instance, an existing consultant may
be tasked with bribing a public official to rig the bid specifications of a procurement contract so that
it favours the company.
3) Fake intermediaries: rather than providing a legitimate or commercially-justifiable service
to the company, the intermediary, often hired for “consulting,” can be controlled by
whoever will receive the bribe. The consultant is often paid through fraudulent invoices
and/or for non-existent services. This may also happen in situations where local
government insists that companies have to work with one of a list of ‘approved’ domestic
agents – who may be linked to public officials – and these approved agents are then used
to intermediate the bribery transactions.
4) Appointment of an intermediary specifically to facilitate a bribe payment: the payer of
the bribe (such as a sales manager) and the recipient of the bribe (such as a government
procurement officer) agree that the payment will be made through a designated third
party, who will be appointed as an intermediary in a transaction. The third party may be a
relative, spouse, or associate of the recipient.
5) Fake invoices. There are several variants of schemes in which fake invoices are used to
generate slush funds that can be used for bribe-paying. For example, a so-called supplier
can be set up which in fact only exists to provide fake invoices generating cash which can
be repaid to employees in order to provide them with a slush fund for paying bribes; or a
legitimate third party on the approved supplier list agrees to render a false invoice which is
paid but later refunded. The refund is paid in cash enables the third party to pay the bribe.
 internal investigation
EXAMPLE 1: reveals that the state
Inflated invoices: company has been
bribes paid by demanding ever-
intermediaries increasing pay-offs,
masked as while the service
payments for company’s Head of
unspecified services Operations in the
• An oil services country has been
company is signing off ever-
working on behalf increasing fees for
of a major state- the consultant.
owned oil
corporation. EXAMPLE 2:
• The services Intermediary provides no
company hires a services to the company,
local consultant to but is controlled by the
help with routine recipient of bribes
business tasks in the • A wholesale telecom
country. The services company
consultant then bills needs access to local
the services telecommunication
company for ‘in- lines for its business
country consultancy in a South-East Asian
services’. market.
• The consultant • The lines are
submits inflated notoriously difficult
invoices to the oil to access due to local
services company, bureaucracy and red
and channels the tape, and the
difference to the government is known
private accounts of to be hostile to
the officials working foreign companies.
at the state-owned • To get around this,
company. This helps the telecom services
to guarantee that the company decides to
services company pay over USD 1
will be retained as a million in kick-backs
prime contractor to a handful of senior
despite international officials at the state-
competition for the owned telecoms
contracts. company that assigns
• The London HQ of the lines.
the services company • To channel the
discovers the bribery payments, the
scheme when profit- wholesale telecom
margins decline in company hires a
the country. An “local consultant” at
 the suggestion of the devise a plan, in which would include the 10% bribe the temptation and agrees
state-owned the politician’s in the broker’s fee. to the proposition.
company. The daughter will be paid • The official would see to it
consultant is actually for resort develpment that the brokerage would be
contracted by the Ministry,
owned by the brother consulting services’ she
while the broker would
of the Chief Financial will allegedly provide.
transfer the bribe to the
Officer at the state- These are entirely
official’s Swiss bank account.
owned company. fictitious, and she has
• The consultant no experience in this EXAMPLE 5:
provides no actual sector. Professionals as
consulting services, • Several million US intermediaries
but the wholesale dollars are deposited in • A family-owned
telecoms company her bank account, and multinational luxury
pays it USD 1 million which she then transfers goods company based in a
for “management to the family’s joint Mediterranean country
consulting” in 4 account. has been concealing some
instalments. The of its profits abroad in
consultant then EXAMPLE 4: order to avoid paying
Professionals as taxes.
transfers the money
intermediaries • When the local tax
to the state-owned
company’s CFO, who • An insurance broking firm authority presents the
distributes it to specialises in finding chief accountant with a
selected senior private insurers for hefty fine for years of tax
colleagues. government entities, and evasion, she and the Vice
has a good network of President approach the
EXAMPLE 3: Family contacts in both public and tax officer with a
member acting as private spheres. proposal.
intermediary • The broker knows of an
• They ask the tax official
insurance company that
• A former prime minister to negotiate a 40%
would like to expand its
reduction in their fine
of a Latin American sales quickly, and in time
for the next quarter’s with a “favourably
country, who still serves
results. disposed” senior tax
as an influential cabinet
• A sales manager of the official.
minister, is approached
insurance company has• In return, they let the tax
by a well-known foreign already made contact with an official know that he
businessman. official in the Ministry of could help himself to
• The businessman is Infrastructure who would another 40% of their fine,
after political backing help direct a number of keeping half for himself
for his resort lucrative contracts to the and passing on the other
development project. insurance company in return
half to the more senior tax
• In return, the for a cash payment equal to
official in return for his
10% of the business the
politician is “cooperation.”
company receives
promised a • The tax authority would
• The sales manager of the
“generous still receive a fine, albeit
insurance company
contribution” to his approaches the insurance only 20% of the original.
sizeable debt and broking company with a • The proposed bribe is
large tax liabilities. proposition to act as a significant, so the tax
• The proposition is conduit for the payment to official is unable to resist
appealing and the two the official: the company
 GUIDANCE
Intermediaries are a high-risk area. It is important to minimise and manage the risk.
• Monitoring and sufficient due diligence are key:
-- Due diligence should be carried out on intermediaries before appointment – for example, to check
whether the agent has faced allegations for involvement in corruption, or requests payments to
be made in unusual ways such as via a tax haven.
-- Enhanced or additional due diligence may at times be required.
-- The purpose of due diligence is to identify and avoid dealing with questionable third parties. Look
out for key red flags, such as whether an intermediary is resistant to formal written agreements,
appears able to bypass legal or bureaucratic hurdles more easily than others, or charges fees or
commissions that are well above the market norm.
-- Monitor the conduct of conduct of agents and intermediaries. If an intermediary is suspected of
bribe-paying, it is sensible to suspend the relationship immediately and make appropriate
investigations.
• Communicate to all agents and intermediaries the company’s anti-corruption standards as
well as international regulations and ensure that they are contractually obliged to abide by
these standards.
• Ensure that the market rate for their services is paid, that nothing “extra is included” and that
the agent delivers the services that are paid for.
• Do not use third parties as a conduit for making unethical payments.
• When employing public officials as consultants, extra care needs to be taken that the service is
genuine and all payments are properly recorded and disclosed:
-- It should be clear that there was a legitimate business reason to contract the official (e.g. for
technical expertise).
-- It should be clear why that particular official was selected.
-- The appointment should be permissible under the official’s employment contract as an official,
and transparent to is/her employer.
-- Fees should be based on market rates.
-- Services provided should be recorded in detail.
 2) Bribery through The Supply Chain: Sub-Contractors &
Distributors
DESCRIPTION
In today’s globalised economy, corporations often rely on large supply-chains, made up of sub-contractors based
in a number of countries. However, complex networks of sub-contractors also increase the risk of bribery. Any
link, or sub-contractor, in the chain may be approached for a bribe or decide to pay a bribe. Complex supply
chains represent a high risk of corruption since they are local, often made up of small and medium-sized sub-
contractors that have less power to resist demands for bribes, or simply have more “contact” with centres of
bribery.

Moreover, sub-contractors are of course also interested in maintaining profits, and could bribe the prime
contractor to keep them on the suppliers’ list.

When operating overseas or fulfilling complex orders, corporations often hire local sub-contractors as they
lack local knowledge, expertise, or capacity in house. Selecting a sub-contractor with close links to an official
who is in a position to favour the main company over its competitors is a common way of disguising a bribe. It
enables the official to benefit directly or indirectly, while the company can claim it was simply tapping into
local expertise.
•

EXAMPLE 1: Sub-contracting to a
company connected to a public official as the award of the submarines contract to the large defence
part of an offset or industrial participation company.
agreement

• A large defence company is bidding for a contract to EXAMPLE 2: Sub-contract directed to an

sell submarines to the Ministry of Defence of a
European country
• As part of its defence offset regulations, the country
requires that whoever wins the tender generates local
sub-contracts amounting to 30% of the value of the
main submarine contract
• The tender is in the final stages, and the company is
competing with just one other.
• Each company is trying to put together the more
attractive offsets and local production package.
• The senior sales manager in the large defence company
finds out that the brother of one of the chief Ministry of
Defence Procurement officials owns an electronics
company that manufactures radar systems that could be
adapted for the submarines.
• The sales manager assures the official that the sub-
contract for the manufacture and subsequent
maintenance of the radar systems would be granted to
the brother’s company.
• Even though the submarine produced by the rival
company is an overall better fit for the specifications
given by the Navy, the official successfully pushes for
official’s business interest
• A group of energy and petrochemical companies is
setting up operations in a new market via a
consortium.
• It will need to import a large number of materials and
equipment, so the consortium management decides to
hire a local logistics and freight forwarding sub-
contractor.
• It is well known that the customs service is very
slow and inefficient, while the customs officials
purposefully delay imports to solicit bribes.
• The consortium’s management know that the deputy
director of customs secretly co-owns a logistics
company.
• To ensure that its imports are given priority, the
consortium management lets the deputy director of the
customs service know that the consortium is keen to
sub-contract its logistics and freight forwarding services
to the company that he secretly co-owns.
 • To fulfil these terms, the licences, and specialised working on a
EXAMPLE 3: company hires a shops catering to stadium-
Distributors acting as manufacturer of ejector government orders-- all building project
intermediaries for seats as one of its a particularly lucrative in the Middle
bribe payment subcontractors. business area. East.
• However, due to • The distributor’s fee • The
• A company
continuous delays and directly depends on the construction
manufacturing medical
cost-over-runs by the order volumes, and company
equipment has a local
ejector seat company, when government wishes to free
distributor in one of its
the fighter jet purchases begin to up some cash
countries of operation.
manufacturer soon decline, the distributor that it can use
• When the company’s
considers terminating decides to protect his to pay a bribe
sales begin to dwindle,
the contract and own compensation. for work
the regional sales
switching to a • He offers the permits related
manager instructs the
competitor. purchasing to the stadium-
distributor to make
• To avoid losing this officials and building
‘incentive’ payments to
lucrative contract, the shop managers project.
the personal accounts of
ejector seat cash and free • Although the
doctors with whom it
manufacturer’s head of premium work permits
has contacts.
business development beverages in are not directly
• In return, the doctors
promises a manager of return for related to the
agree to steer “their”
operations at the jet- authorising engineering
hospitals to purchase
maker a “commission” increased consultancy’s
the company’s products.
equal to 10% of future purchases of work, the
• The company also uses
orders of the ejector his principal’s construction
the distributor to
seats for the duration of products and company’s
channel bribes to the
the contract. placing them in project
country’s Intellectual
the most manager asks
Property Board which
EXAM attractive the engineering
approves patents of the
PLE 5: location on the consultancy to
company’s products.
Distrib shelves. issued him with
EXAMPLE 4: utor • The distributor an invoice for
Sub-contractor paying then “recovers” services that
paying a bribe to bribes have not been
the expense by
retain business to provided so
masking it as
increas that he can
• A multinational e expenses for
create a slush
manufacturer of fighter remune “special fund to pay
jets wins a lucrative ration promotions”. bribes.
contract with an • The
• A multinational FMCG
overseas Ministry of EXAMPLE 6: Going the engineering
company selling
Defence. extra mile for a customer consultancy
alcoholic beverages in
• However, according to wants to help
Eastern Europe appoints • An engineering
the contract put an
a local distributor. consultancy has
specifications, 15% of important
• The distributor is a customer in
the fighter jet client, and
responsible to the construction
components must be issues the false
generating sales from sector, for
produced locally. invoice; the
supermarkets, off- which is
 construction
company pays
the invoice.
• After the
invoice is
paid the
constructio
n company
asks the
engineerin
g
consultanc
y for a
credit note.
The credit
note is
raised for
the invoice
value and
the
correspond
ing cash is
returned to
the
constructio
n company.
• The
construct
ion
company
uses the
cash to
pay an
official
for the
work
permits it
needs.
GUIDANCE

•Ensure that all associates, sub-contractors, and distributors are well aware of the company’s anti-bribery
and anti-corruption policies, as well as local and international anti-corruption laws.
•Try to make sure that there are anti-corruption provisions in agreements and that associates, sub-
contractors, and distributors are obliged to abide by the company’s anti-bribery policies.
•As with agents and other intermediaries, due diligence and risk assessment should be carried out on
associates, sub-contractors, and distributors before these are appointed.
•The purpose of due diligence is to identify any risks associated with associates, sub-contractors, and
distributors. Look out for key red flags - particular attention must be paid to ownership of companies
and organisations, for example to ensure that sub-contracts are not unwittingly granted to public
officials or persons who may have a conflict of interest.

3) False or Inflated Invoicing & Product Pricing.

DESCRIPTION
The payment of a bribe is usually hidden or disguised within the organisation’s accounting records, or paid
off balance sheet (e.g. through bank accounts which are not recorded in the organisations’ accounting
records). Fake or inflated invoices provide a common veneer of legitimacy to conceal bribery. An inflated
invoice can be generated by a supplier, which covers both the fees legitimately due, and an additional
amount to be used as a bribe. An invoice can also be entirely false, and represent no legitimate service
whatsoever.
 EXAMP the past violation and • In return, the head • The head buyer feels
LE 1: expedite the approval buyer was to make even more secure
Customs for future imports. sure that the supply agreeing to this
agent • To conceal the contract is renewed scheme.
pays actual purpose of for an even longer
bribe these expenses, the period than is on the
and re- former customs table.
charges agent presents
client • The head buyer
invoices for
using agrees.
unspecified services
inflated • The senior accounts
with no supporting
invoice manager then takes his
documentation,
which are promptly plan to his company’s
• A manufacturing
paid. finance director, who
company is setting up
agrees to the bribes in
factories in Latin
EXAMPLE 2: principle, but insists
America and must
Supplier over- that their company
import all of its charges its does not have enough
manufacturing customer to cash at its disposal to
equipment into its pay bribes to
make the payments.
various countries of customer’s
•
operation. corrupt
employees • The senior accounts
• It hires a former
manager then takes
customs agent to
• A company the second part of his
handle the paper work
supplying vegetables proposal to the
– filling out the paper
to a major supermarket chain
work, tracking the
supermarket chain in buyer. He asks him to
shipments, and
the UK is facing the approve inflated
dealing with customs renewal of its GBP prices for the
officials when 45 million supply
necessary. vegetables, after lower
contract.
rates had already been
• The company’s • Unfortunately, the
negotiated with the
imports into one Latin senior accounts
manager is fearful supermarket chain.
American country are
held up because the that this profitable •
local customs officials business will be lost. • The excess money
“discover” a previous • He invites the head would then be
customs violation buyer of the transferred to a secret
punishable by a “fee.” supermarket chain, “fund” in an offshore
• The manufacturer’s known for his love of bank account, for
chief logistics officer luxury, to an which the buyer
for the region instructs expensive restaurant, would be given a
the former customs and over dinner offers credit card. The senior
agent to pay any him a monthly accounts manager
necessary fees and “allowance” of GBP assures him that the
expenses to get the 20,000, to be spent on natural variation in
equipment moving. restaurants, exclusive vegetable prices
• She pays the customs hotels, luxury goods would allow them to
officials USD 5000- and travel. conceal the inflated
7000 each to overlook prices.
 EXAMP
LE 3:
Compan
y creates
fake
invoices
to
disguise
slush
fund
used for
bribes

• A company
manufacturing
pesticides that
supplies the Ministry
of Agriculture needs
to register its products
with the government’s
new Insecticides
Board.
• However, as the
company does not
have the necessary
environmental impact
assessment
certification,
registration could be
problematic.
• To secure registration
despite the missing
paperwork, the
company asks an old
and trusted supplier to
submit a series of fake
invoices totalling
USD 50,000,
explaining they are
‘for tax reasons’.
• The USD 50,000 is
used to create a slush
fund to pay officials in
the Insecticides Board
who then grant a
licence.
 GUIDANCE

• Ensure that all invoices are properly accounted for with supporting documentation.
• Carry out investigations and audits into any payments that do not have sufficient information or are supported by
suspicious invoices.
• Ensure that managers and employees are aware of forecasts for costs associated with future business,
allowing any ‘unforeseen’ costs to be flagged and evaluated.
• Ensure there is a regular audit to monitor accounting practices that pays specific attention to irregularities or
eccentric spending. Particular attention should also be paid to accounts related to the granting and renewal of
contracts.

4) Sunny Places for Shady People.

OFF-SHORE ARRANGEMENTS AND OFF BALANCE-SHEET PAYMENTS.

DESCRIPTION
In addition to, and often in conjunction with, the use of intermediaries, bribes are often transited through a
number of bank accounts or front companies. It is useful for those engaged in bribery if these are located in
foreign countries with lax regulation, poor transparency, or favourable secrecy laws. The goal is to distance
the bribe from both the payer and the recipient, and also to conceal the identities of both. Slush funds can
also be located offshore. Profits from legitimate company business may be directed into offshore slush funds
through fictional or vague invoices and using a chain of agents. Once these are set up, bribes may be paid
from the slush funds at any time – to develop a relationship, obtain a specific contract, as a ‘thank you’, to
maintain favourable relations, etc.
• The invoices are then paid directly into the bank
account of the offshore company; 85% of the amount
is channelled to the employees of the state-owned
EXAMPLE 1: Bribery through an off- company, while 15% is kept by the consultant.
shore registered company

• A software company has a contract to supply the EXAMPLE 2: Bribery through an

state-owned telecommunications corporation of a
southern European country.
• To retain this business and to attract more orders from
the numerous subsidiaries controlled by the
telecommunications company, executives in the
software company’s regional sales division devise an
illegal payments scheme.
• A consultant is hired to facilitate sales in the region.
He says that the best way forward is to have the
company make unofficial payments to key officials
when necessary.
• The consultant sets up and off-shore company to
make these unofficial payments. Neither the offshore
company, nor its owner, provide any actual business
development or retention services for the software
company. Instead, their sole purpose is to funnel
payments to employees of the state-owned
telecommunications provider.
• Once a bribe has been agreed between the software
company and an employee of the state-owned
telecoms company, the consultant is instructed to
submit an invoice for consultancy services.
off-shore registered company 2
(bribery between private
individuals not involving public
officials)
• A Western European food and drink company has a
lucrative supply contract with a wholesale
cooperative that brings in GBP 250 million annually.
• The contract is due to expire, and there are disputes
regarding future terms that may make it difficult to
renew.
• The CEO of the food and drink company, who started
it and built it up himself, however, would like to
make sure that it is extended for the next 30 month
period.
• He hires a broker with whom he had worked in the
past, to negotiate the deal and iron out any
disagreements.
• The broker tells the CEO that there is a faster and
more certain way to make sure that the supply
contract is extended. He proposes paying to some
influential directors of the wholesale cooperative
owner a “success fee” of GBP400,000 each.
• The broker adds that he has a company registered in
the Bahamas, which can issue invoices for “expert
advisory services.” The food and drink company
would then make cheques payable to this offshore
business, they would be deposited in its bank
accounts, and money transferred to the directors.
• The broker says that it is unlikely that the wholesale
cooperative will go for the deal without these extra
“incentives” and assures the CEO that he would
never be connected to the transfer, as he would
handle everything himself through his company.
• The CEO does not want to risk the
supply contract not being renewed
and agrees to the scheme.

EXAMPLE 3: Bribery using an off-shore bank
account
• An investment bank is contracted to represent and
advise the government of a Central Asian country in
the sale of rights to its oil fields. The director and
controlling shareholder of the bank is also given a
quasi-official advisory role to the president of the
country in connection with oil and gas transactions.
• The investment bank is due a “success fee” to the
amount of USD 67 million over five years, after the
sales are successfully closed.
• As the adviser on sale of rights, the investment bank is
in charge of collecting fees from the sales.
• To ensure that he remains in the privileged advisory
position that has allowed him to close so many
successful deals, the director of the bank transfers
USD 70 million from the fees paid by a number of
energy companies for oil and gas rights in the country
into a bank account in Switzerland, via several
“investments” into companies in the British Virgin Islands.
• From the diverted funds, he then transfers payments to
four senior government officials in the Ministry of Oil
and Gas Industries, who have the power to authorise
his hire as adviser and to approve his success fees.
EXAMPLE 4: Bribery using investment in
off-shore enterprises
• An US-based IT company is about to make its first
initial public offering, and is facing scrutiny and
pressure to meet earnings forecasts.
• The director, and majority owner, has a strong
reputational and financial stake in the success of the
IPO. To condition the market and hit various targets,
he transfers a significant proportion of last year’s
profits to a Swiss bank account and “saves” the taxes
he would have paid on the funds in the US.
• However, questions are raised during an internal audit,
and US authorities request Swiss tax officials to
disclose the accounts.
• To avoid detection the IT company director enlists the
help of his friend, a former investment banker with a
multinational bank, who is very well connected.
• The banker proposes to make the tax official assigned
to the case more “disposed” through making him a
large personal payment.
• The banker offers to route the money directly to the
tax official’s account—funds that his friend will have
first “invested” in a small Swiss bank the banker had
just joined.

GUIDANCE
• The use of off-shore accounts to pay bribes and off balance sheet payments is often linked to
agents and intermediaries. Apply relevant due diligence on intermediaries before appointment.
• Specifically check whether the agents or intermediaries have faced allegations for involvement in
corruption. Monitor the conduct of agents and intermediaries.
-- Be on your guard if they request payments to be made in unusual ways such as via a company in a tax haven.
-- If they are suspected of bribe-paying through a number of bank accounts or front companies it is sensible to
suspend the relationship immediately and make appropriate investigations
• Investigate any suspicions of payments being made that are outside the scrutiny of regulators.
• Always question whether funds routed via tax havens are legitimate in origin or objective.
 5) Joint Ventures. for Better for Worse.
DESCRIPTION
Joint venture structures can be used to channel bribes, with or without the knowledge of all the partner
companies in the enterprise. Sometimes, a joint venture structure may be created specifically to distance a
company from illegal practices such as bribery.

EXAMPLE 1 EXAMPLE 2

• A joint venture is created by four companies to bid for
natural gas projects of a Middle Eastern country.
• Each of the four partner companies has designated a
senior executive to be on the joint venture board.
• The four senior executives conspire to bribe
government officials in order to win contracts in the
project.
• The bribes are routed through the joint venture’s
agents, one of whom is a UK citizen and certified
solicitor.
• To pull this off, the joint venture concludes contracts
with a consultancy company operated by the
intermediary in Gibraltar, and transfers USD145
million to his bank accounts in Switzerland and
Monaco.
• A European state-owned shipbuilding company
enters into a joint venture agreement with a
European defence company.
• The joint venture puts in a bid to supply three
submarines to an East Asian government.
• To win the contracts (valued at close to USD 1
trillion), the JV pays USD160 million in
“commissions” to a “local business practices
consulting” company.
• The company is in fact owned by an aide to the
defence minister at the time of the sale, with a
brief to advise on naval purchases.

GUIDANCE

• Carry out due diligence on relevant companies before entering into a joint venture or consortium.
• Be confident that the prospective partners do not have a history of bribery.
• Ensure that other entities in a joint venture either have anti-corruption/anti-bribery policies in
accordance with your own, or communicate these policies and encourage all partners to adopt
them.
• Monitor the performance of joint venture partners with regard to these policies, and take
appropriate action where there are discrepancies, including termination of contracts if necessary.
• Ensure that contracts with joint venture partners allow them to be terminated on ethical grounds
such as significantly breaching a code of conduct or credible allegations of corruption.
• Ensure that the joint venture company itself has in place appropriate anti-bribery policies and procedures.
 6) They Taught Me Everything I Know!
TRAINING COURSES.

DESCRIPTION
Customer training can be used to provide a cover for bribery. For instance, a company can create a “training
fund” or “training budget” out of which it can pay bribes in the form of travel, entertainment, per diems, and
gifts. Hospitality amounting to a bribe, such as lavish vacations organised for officials, and clients as well as
their friends and families, can also be recorded in the company’s books as “customer training”. Those actually
attending the “training” could be different from the list that was approved by management, to get around
company limits on hospitality. Another scenario is “recording” more participants than actually attended, and then
using the surplus training course funds to create a slush fund.

•
EXAMPLE 1: Training fund set up for clients EXAMPLE 2: Holidays disguised as
training workshops
• A Western European manufacturing company is keen
to secure a new contract in Asia. • A multi-national company is supplying
• After months of negotiation, it becomes clear that the radiopharmaceutical products to state-owned hospitals
customer wants the contract to include a visit to in a South American country.
Europe for 10 senior executives and their families. • It operates a system of “support provision” to doctors
in the hospitals which it supplies.
• The manufacturing company writes a ‘training budget’
• As part of this, the company establishes a fund, by
into the contract under which, at its own expenses, it
setting aside 3% of profit from the sales of equipment,
will bring ten officials to the UK to be trained in its
apparently to finance doctors’ attendance at training
equipment and processes.
workshops and educational seminars.
• Once the contract is signed, the ten senior executives
• In reality, the fund was used to fly the doctors for
are invited to the course. Their flights are routed via
“training” at top tourist destinations, and to pay for
Paris. A London hotel is booked for them to stay in,
their administrative fees, travel expenses,
where the training course will take place. Since they
accommodation, meals and entertainment. They were
will be away for two weeks, tickets are also provided
also provided with “travel allowances” while on
for their partners. They are each given a per diem
training, and supplied with “professional necessities”
allowance of USD500 to cover ‘out of pocket
such as laptops.
expenses’.
• In return, the doctors were incentivised to ensure that
• 8 of the executives fly to the UK via Paris, with their
their hospital kept up its orders with the company, even
partners. The remaining 2 do not come, but have
when there were more cost effective providers.
already been sent their per diem.
• On the first day of the course, one executive turns up
and signs in for the whole group. Nobody attends the
course from then on.
 GUIDANCE

• Increase accountability with regards to funds spent on training and workshops. Create mechanisms
for regular monitoring and auditing on all training courses.
-- Senior management or supervisors can request regular reports on training sessions including feedback
on effectiveness of training and details of completed courses by attendees.
-- Approval procedures for training courses could be multi-level.
-- Verification of a random selection of events would enhance the audit procedure.
• Set a standard or guidelines on how training courses and workshops must be run, and ensure compliance
by creating oversight positions/bodies.
• Limit overseas training to occasions where there is a clear and justifiable business rationale for both
the people involved and the location.
• Avoid paying large per diems; ideally per diems should only be of nominal value and designed to cover
small out of pocket expenses.
• Ensure that hotel bills and other expenses are picked up directly and avoid reimbursing or
providing allowances to individuals.
• Consider insisting on post training reports (which could include photographs of the attendees) to
verify the training took place and place it in the training record.

7) Pocket Money. Per Diems and Expenses.

DESCRIPTION
Paying per diems can at times be equivalent to paying a cash bribe. Per diems are effectively a payment to an
individual for attending a meeting, course or event. Likewise, generous reimbursement of expenses can also be a
means of disguising a bribe. What may be considered to be reasonable, and therefore not potentially a bribe, can
be difficult to determine. Therefore, the safest option would be to avoid cash per diems all together, when
clients, officials, or business decision makers are involved.

EXAMPLE 1: Customers’ generous
expenses claims reimbursed
• A European manufacturer is negotiating a sales contract
for the supply of products to the municipal government
of a North American country.
• The municipal government officer responsible for
procurement negotiates a clause in the contract
providing Euros 400 per person per day as an allowance
while attending technical training on the product. The
contract specifies that training will be provided for 18
individuals, covering a 3 week period.
• The training place takes place in Europe shortly after
the contract has been signed. The air tickets are
provided by the manufacturing company.
• The technical element of the training takes 2 days.
• For the rest of the three weeks, the visiting party spent
their time as they wish. Some travelled to 3 European
capitals, with logistical support from the manufacturing
company.
• The per diems were paid in cash to the head of the
municipal government delegation on the first day of
their visit.
EXAMPLE 2: Providing improper travel per
diems
• A company specialising in bespoke software for
deepwater oil drilling operations wants to win new
contracts from state oil companies in a country
beginning to increase its oil exploration.
• Through its local representative office, the company
begins paying the employees of the state-owned
companies to act as internal consultants to evaluate the
software and then convince the procurement department
of the oil companies to buy it.
• In addition to the “consultancy” fees the regional head
sales manager of the software company signed off on
travel for the “internal consultants”.
• The trips a were masked as customer training, and while
there, the employees of state-owned companies would
be paid USD400 cash per diems.
 GUIDANCE

Cash per diems should be avoided, or if they are paid, be of low or nominal value. Any larger per diems that are
deemed necessary should be strictly limited and monitored – for example:
• Implement transparent and efficient policies to decrease opportunities for abuse, including setting low
maximum values for per diems and expenses.
• Increase supervision and audit functions. This can include policies such as not paying full per diem amounts in
advance.
• Increase accountability. Require regular reports from staff about where per diems have been used and why.
• Always confirm that any per diem being paid is in line with the local laws and policies of the recipient.

8) Rebates and Discounts Or Kickbacks

DESCRIPTION
Rebates and discounts are commonly used as incentive schemes in business, particularly when they are linked to
a customer increasing the quantities it purchases. However, rebates and discounts may also be diverted to the
individuals who are responsible for procurement decisions, thus becoming a kickback to the vendor, and a bribe
in order to secure a contract.

EXAMPLE 1: Customer rebate paid in account or treat it as a “contribution towards personal

cash to client account manager discretionary business spending”, as the agent puts it.
• To receive the rebate, the credit manager would of course have to
• A credit manager in a large company would like to find use this agency, rather than its competitors.
a debt collection agency which his company could use
on a regular basis to recover money from defaulting EXAMPLE 2: Rebates used as kickbacks
customers.
• A German copper trading company would like to
• The credit manager has an introductory meeting with a
increase its copper sales in one of its countries of
sales agent from a debt collections agency.
operation.
• During the meeting, the sales agent proposes a fee
• Together with the executives of its local subsidiary, the
scheme, in which the credit manager’s company would
company’s regional sales director sets up a kickback
pay the collection agency a “success fee” of 15% of the
scheme to channel payments to purchasing managers of
debt value when the debt is recovered.
the state-owned copper wire and electronics
• In addition, the agent promises that a 3% rebate of the
manufacturer.
total amount of debt collected by the debt collection
• The copper trading company would charge inflated
agency during the month would be transferred back to
amounts for the copper supplies, and the purchasing
the credit manager’s company as a rebate.
managers would then be “refunded” through rebates equivalent to
• The agent also adds that the usual means of paying this 5-10% of the purchasing price, which would be transferred into their
would be in cash, directly to the credit manager. He personal accounts.
would then be at liberty to deposit it in the firm’s

GUIDANCE

• Make sure it is clear that these schemes are labelled as bribes/kickbacks in company compliance and training.
• Incorporate the concept of bribing through rebates, discounts, and refunds into anti-bribery
and anti– corruption policies.
• Be on the alert when potential business partners offer or request exclusive benefits in return for
business decisions.
• Know how to deal with it if you are offered or requested suspicious rebates or discounts.
 9) Employment Contracts and Consulting Agreements
DESCRIPTION
While it may make business sense to hire candidates whose background is known, offering jobs or internships to
relatives or associates of clients or officials can also become a form of bribery. For example, hiring the children
or relatives of a client or an official, whether for an internship, a job, or work experience, could unduly influence
contract awards or other business decisions. Therefore, although there is no legal prohibition on this, it is a risky
area. There is also the possibility that a new ‘employee’ may never actually work for the company and only be a
‘ghost’ employee purely created in the accounting records as a means to extract cash. The paperwork for the
individual can be fabricated to give the impression that the appointment was via a proper process.

EXAMPLE 1: Fictitious employment contracts
used as vehicle for bribery
• A high end leather goods manufacturer just breaking
into the market is desperate to conclude a supply
contract with a luxury Western European retail chain.
• However, the barriers to entry in the upmarket retail
industry are high and competition is fierce.
• The business development manager of the leather goods
company feels the chances of winning the supply deal
are slim.
• Over lunch with the retailer’s supply manager, who is
known to struggle to finance his lavish lifestyle from his
earnings, the business development executive offers to
retain him as a “consultant” after the contract is
concluded.
• The supply manager’s contract would say that he is
responsible for evaluating and inspecting the product,
which is entirely credible.
• The supply manager is promised cash payments, an
expense account and reimbursement of his ‘out of
pocket expenses’ to an agreed annual limit.
• This is clearly a breach of corporate policies and due
diligence regulations, so the operations manager phones
the government representative with his concerns.
• However, the official not only dismisses these worries,
he openly admits that the agri-company will steer a
percentage of the profits from the deal in his immediate
family’s direction. The official explains patiently that
this is how business is done in his country, and his
official salary is insufficient to support his large family.
• The operations manager is of course aware that his
actions amount to bribery, but he feels the projected
profits are just too large to lose, and if he walks away
from the deal his own job will be in jeopardy.
• The operations manager therefore agrees to this
arrangement as a condition of doing business in the
country.

EXAMPLE 2: Specific partner mandated by

local government and used as a conduit for
payments
• A North American FMCG company is looking to
expand into a new market in the Gulf.
•
• Before commencement of trading, a local government
official with some clout insists on a specific local agri-
company becoming the company’s sole and exclusive
supplier of certain products in the local market.
•
• While looking into the local agri-company, the director
of local operations finds out that it is owned by relatives
of the government official.
 GUIDANCE

• Ensure that any employment contracts or consulting agreements are open and transparent – for
example, not hidden or disguised internally.
• It must be clear that any employee has the skills/knowledge required for the position.
• Ensure there are policies in place to monitor and evaluate performance of employees and associates,
and these are applied across the board.
• Associates or relatives of clients or officials should be paid what other employees in a similar
position are paid, and separated from the business that deals with their high-placed relative or
associate.
• Ensure that employees know that they will not be punished in any way for refusing to pay a bribe or
favour colleagues’ connections with business.